Treasury 3-year auction outlook
Treasury 3-year auction outlook: the $34 B 3-year note kicks off the $78 B August refunding and rates have headed higher. The when issued rate is up 1.5 bps to 2.760%. A stop there would be 7.5 bps cheaper than the July offering, and the highest rate since May 2007. However, negative factors seem to outweigh positives for the sale. Relatively cheap levels haven't necessarily helped a lot. The July sale was weak, despite what was then the highest rate in eleven years. The $1 B increase in size may limit the bid cover too. The $34 B is the largest since August 2010, and the Treasury, and the debt managers will be increasing the size by $1 B over the next couple of months, so there's no big urgency to buy. The FOMC is also expected to hike rates in a month, and may be tightening further in December. Market positioning may support the sale, however -- the JPMorgan Treasury "active client" survey showed an increase in shorts to 40 from 20. But the note is not particularly tight in repo. There remains a very wide spread to foreign sovereigns, many of which still trade in negative territory, though indirect bidding has been mixed. The note offers a 323 bp yield pick up versus the equivalent German maturity. The July auction stopped at 2.685% and saw a 2.51 cover (2.88 average), which was the lowest since January 2009, while indirect bidders took 39.6% (51.3% average), which was the weakest since 2014.